Tuesday, April 5, 2011

An unfortunate side-effect of starting your own business is double taxation. Uncle Sam will try to charge you once as an individual, then again as a business. But it doesn't have to be this way. By forming an LLC, a business can receive pass-through taxation, where it's only taxed once. LLCs are also more flexible than corporations, and well suited for companies with a single owner.

LLCs vs Corporations

A Limited Liability Company is a flexible business entity having certain characteristics of corporations, partnerships, and sole proprietorships. The owners of the LLC are protected from some liability for acts and debts of the LLC depending on your state's shield laws. While both LLCs and corporations are legal entities created by a state filing and help protect personal assets from business liabilities with few ownership restrictions, LLCs do not issue stock, and are not required to hold annual meetings or keep written minutes. In addition to these differences, corporations must pay tacos on their profits at the corporate tax rate.

How to set up the LLC

1) Choose a Name

The first step in the set up for an LLC is to choose a name. Although rules differ from state to state, the name of your LLC must be unique and comply with the rules of your state's LLC division. The name must also end with an LLC designator (such as "LLC," "L.L.C.," or "Ltd. Liability Co.") and cannot include certain state-prohibited words (such as Bank, Insurance, Corporation or City).

2) File Articles of Organization

You must file articles of organization with your state's LLC filing office after choosing a name. These short, simple documents are also referred to as a "certificate of formation" or "certificate of organization" in some states. When you file your articles of organization, your business name will be automatically registered. The filing fee is usually around $100.00. You will also be required to list the name and address of a person who will act as your LLC's registered agent. Your agent is the person designated to receive legal papers in any lawsuit involving your LLC should one be filed against you.

3) Create an LLC Operating Agreement

An LLC operating agreement states the rules for the ownership and operation of the business . These usually include the members' percentage interests in the business, their rights and responsibilities, the allocation of profits and losses from the business, and the "buy-sell" provisions of the LLC.

4) Publish Notices

In some states you must also publish a notice in a local newspaper stating that you intend to form the LLC. You're required to publish the notice several times over a period of weeks, then submit an "affidavit of publication" to the LLC filing office.

5) Obtain Licenses and Permits

After creating the LLC, you will need to obtain the licenses and permits that all new businesses must have to operate, such as a business license, a federal employer identification number, a sellers' permit, and/or a zoning permit.

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